The European Securities and Markets Authority (ESMA) has published a report on how Member State regulators assess compliance with MiFID’s suitability requirements when firms provide investment advice to retail clients.
Overall, ESMA found that whilst most Member State (MS) regulators have a good understanding of the investment advice market in their jurisdictions and regularly review the distribution methods and business models of investment firms, there is scope to adopt more proactive supervisory approaches and strengthen enforcement activities.
Among other things, ESMA found that:
- MS regulators have a good understanding of the types of distribution methods used in their jurisdictions and where the boundary between investment advice and information lies. However, limited supervision was performed to verify whether clients are receiving investment advice in practice or have the perception that they are receiving advice;
- most MS regulators do not perform supervision which is targeted at the particular behavior of a firm or group of firms as part of a specific suitability project;
- most MS regulators stated that they use a wide range of tools to monitor the main aspects of advice suitability but only a limited number provide specific information on the tools they use to supervise compliance with the suitability requirements;
- enforcement action, such as imposing fines or placing restrictions on firms’ activities, was rarely taken. Many MS regulators consider their supervisory approach alone was sufficient to address issues; and
- in many cases, regulators could improve how they publicly communicate with stakeholders on their supervision and enforcement activities and findings.
The findings of this peer review will help ESMA identify those areas where there is a need for further supervisory convergence among regulators.
View ESMA peer report on MiFID suitability requirements, 7 April 2016